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Business group trying to veto-proof its tax-break bill

The Greater Phoenix Economic Council is rebooting its signature bill from the 2011 legislative session with some substantial changes that may help it avoid another veto.

And there will be a change in style as well as substance. Rather than push the bill itself, as GPEC did last session, the economic development organization is reaching out to other business groups it hopes will adopt the proposal as their own.

The GPEC-drafted proposal, obtained by the Arizona Capitol Times, contains familiar benefits for businesses:  A huge property tax break for companies that make major investments, and a tax break for Arizona-based companies that provide services to out-of-state customers.

Gov. Jan Brewer vetoed two bills last session that contained those proposals.

But the 2012 version makes some changes that GPEC is hoping will alleviate Brewer’s concerns and blunt some of the opposition that one of the bills, SB1041 or Invest Arizona, faced in 2011.

The new proposal also excludes mines, utilities and retailers from the property tax incentive. Opponents of Invest Arizona argued that such “captive industries” would not only be eligible for an incentive meant to attract new businesses to the state, but would be able to use it as a loophole to get a tax break on facilities they’ve already built.

And the sales tax exemption for out-of-state services, known as the sales factor, would be phased in on the same schedule as a similar tax break for manufactured goods that are sold outside of Arizona. Brewer vetoed SB1552 over concerns that it would cost the state millions in revenue at a time when she and lawmakers are struggling to balance the budget.

Furthermore, the eligibility requirements for the property tax incentive are substantially higher than they were last session.

“We sat down and went meticulously over the governor’s veto letter,” said GPEC President and CEO Barry Broome. “You can’t control people’s ideological positions. But (with) the input from people who could possibly embrace the policy with a couple of changes, we’ll have a stronger coalition behind the recommendation.”

GPEC has already pitched the proposal to Brewer’s staff. Gubernatorial spokesman Matthew Benson said Brewer recognizes that last session’s “jobs bill,” which instituted a raft of tax cuts and incentives, was not the “be-all and end-all” of economic development legislation.

Benson said the governor is open to additional proposals from GPEC or other groups that have met with her staff. But she hasn’t made any decisions yet on what proposals she might support next session.

“Our team has also met with a range of business and industry groups, each of which has their own agendas and things they would like to see the state implement when it comes to spurring economic growth,” Benson said. “I’m not going to be able to characterize at this point where the governor is on (GPEC’s) proposal. We’ll see what each of these different proposals looks like on paper when the session starts and make a determination on a case-by-case basis.”

Unlike 2011, GPEC won’t be running the bill itself. Instead, the group is reaching out to other business groups it hopes will include the proposals in their agenda.

Broome said GPEC has had lobbying successes in the past, but is better suited to economic analysis. Organizations like the Arizona Chamber of Commerce and Industry and the Greater Phoenix Chamber of Commerce are far more experienced in lobbying, he said.

“Hopefully one of our business partners or a collaboration of business partners will champion the policy. It’s not a great position for GPEC to be in, driving a bill. It’s not our preference to be in that position,” Broome said.

In her veto letter, Brewer cited Invest Arizona’s divisiveness within the business community as one of her reasons for rejecting the bill. Conservative business and anti-tax groups came out in force against the bill, and their opposition isn’t likely to change.

Kevin McCarthy, president of the Arizona Tax Research Association, said he opposes the new proposal, just as he did the old one, because it gives preferential treatment to some companies.

“I don’t think any more of it than we thought of (SB)1041,” McCarthy said. “What’s frustrating about this debate … is there are some fundamental policy principles that you really just have to agree to disagree on. It’s very difficult to reach compromises in these areas. Either you believe in treating taxpayers equitably or you don’t.”

Proposal provisions

• 75 percent property tax reduction, lasting 10 years, for new investments.

• $9,000 tax credit for each high-wage job created. To qualify for the credit, which is spread evenly over six years, a company must pay at least

125 percent of the median county wage, which for Maricopa County would be $41,439 a year.

• 100 percent sales factor for service industries, which would allow companies to pay sales taxes in the states where they provide services instead of in Arizona. The new rate would be phased in starting in 2014.

• To qualify for the property tax incentive and job tax credit in an urban area, a company must create at least 100 new jobs and invest at least $15 million in a facility. Invest Arizona required only 25 jobs and a $5 million investment. The threshold for rural areas — five new jobs and a $1 million investment — remained unchanged.

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